It’s business as usual after successful squeezing into the New Year. As the holiday festivities fade away, reality sets in. It’s going to be another tough year for business. Inflation is still spiraling freely upward, and interest rates are still prohibitively low. And the coming harmonized march elections seem not to offer any good prospects for business.
This means treasury departments have to be technically competent in identifying investment vehicles with returns that closely match inflation patterns.
Commentators believe that the stock market faired relatively well in 2007 ahead of other investment vehicles given that it was nearer the inflation rate. This trend is expected to continue this year as the patterns of the major market determinants; inflation and investment interest rate remain unchanged. Of course the performance of the stock market might be affected by the Monetary Policy to be announced. The Monetary policy will have an impact on the interest rate and exchange rate policy.
Given that the government faces fiscal obligations of financing the productive sector of the economy, importing fuel, reducing the ballooning budget deficit and other commitments, it is unlikely that interest rates will go up. An increase in interest rates will make borrowing expensive and the government would not want that given that it is the major borrower in the local money market. This scenario makes the money market an unfavorable investment vehicle.
The property market is another form of investment that investors can go into. Compared to other investments, the property market seemed to have benefited from the price blitz of June 2007. Property prices continued to go up inline with inflation regardless of the government directed price freeze. Caution is necessary when putting money in the property market however. Given that property is very expensive it might not be possible for an investor to take their profits at shorter notices. In addition to the problem of liquidity, property sometimes cannot be divided and sold in smaller units.
The foreign currency is a tempting market but is very unattractive as it carries high risk. Dealing in foreign currency is mostly illegal.
Commentators say that 2008 will not be unusual compared to 2007, as the trend that saw the widening gap between inflation and interest rates is likely to continue. This same trend that saw the stock market perform well is bound to have that performance repeated this year, and give you good reason to invest in the stock market, on selected counters of course.
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